Software SMEs going global: the steps to internationalisation

Investment team

For many software businesses, international expansion is a crucial route for sustaining growth.

Reaching new customers and broadening your talent pools are good reasons to pursue a global strategy, and the time has never been better to do so. Developments in connectivity infrastructure have allowed businesses to scale more easily and more affordably across the globe.

A 2017 report by Innovate UK shows that market access, knowing the right people and market knowledge were cited by UK businesses as the top barriers to international expansion. SMEs should look to form partnerships with those who understand target markets and the opportunities and challenges of overseas growth.

Having people around you who understand what makes a business great where you’re going is important: it might not be the same as where you’re coming from in the world.

It may be effective to bring in an experienced partner or utilise your network to help make this move. Whether it’s finding a mentor to shape the details of your global strategy, supporting the hiring of international talent or navigating local regulation, having someone on hand who has ‘been there and done that’ can make a real difference.

At Livingbridge we’ve built a large international network over more than 100 investments, and their expertise has often been a crucial catalyst for success when navigating the complexities of an international move.

Right market or wrong move?

SMEs without existing clients in its target overseas market may find it helpful to look for cultural similarities and financial and regulatory environments which mirror their own as a starting point.

As a demonstration of this, a study of 69 cloud-based companies that had gone public as at 2017, found more than 80% of US headquartered cloud-companies choose London as their first launch city, with the second most popular choice being Dublin.

The fewer similarities between regions, the more a business will need to invest to gain crucial local market knowledge. Furthermore, many SMEs neglect to factor in costs like translation or incorrectly assume homogeneity of customer demands.

Asia is a perfect example: a diverse continent of religious, legal, social-economic and cultural differences not always united by the ‘common language’ of technology. Again, many businesses will claim to acknowledge this, yet too many have shown that even with the capital and experience, mistakes can be made.

A good example of this is HSBC’s multi-million dollar ‘Assume Nothing’ campaign, whose central slogan was also unfortunately mistranslated as ‘Do Nothing’ by the global bank in a number of Asian countries. Little mistakes can cost dearly, so it’s wise to invest more in research instead of risking even greater losses further down the line.

Legislation and customisation

Groundwork on the legislation of a new region should be extensive, covering employee/employer obligations, costs and fees for foreign businesses, competition restrictions, taxes, patents and licensing, data privacy and protection.

It is also worth investigating what initiatives might be in place to ease complexities for new businesses.

For instance, rather than having to register and report VAT in all 28 EU member states, businesses can benefit from the Mini One-Stop-Shop (MOSS) scheme. Digital suppliers – software companies included – can provide services across the EU with a single registration, cutting the time and complexity traditionally required.

In some territories, governments also offer financial incentives to support international expansion. For example, the Taiwanese government offers grants, subsidies and tax incentives for international companies and entrepreneurs looking to set up operations in Taiwan. Additional funding like this can reduce the risk of expanding into new geographies and accelerate growth overseas.

From a commercial standpoint, any software business looking to expand must ensure its product or solution interfaces with ‘local’ solutions. It’s highly likely that some element of the solution will have to be customised for the local market (whether that be pricing, sales channel, language etc), so the cost of product localisation should be weighed up early against projected returns.

Try and try again

Despite much preparation and planning beforehand, a company is unlikely to score a home run on its first foray into a new market. Most ‘overnight success’ is actually a number of years in the making. Software firms should be prepared to keep trying new things in a new territory, and make informed decisions based on what the data and their clients are telling them.

This includes having the confidence to pivot: international expansion is a process, and plans made initially may not be the most appropriate course further down the line.

Assessing these key factors for international expansion will ensure that the business can scale in a way that is efficient and cost-effective, without losing the levels of innovation, service and commitment that helped them to grow in the first place.

Case studies

Red Box Recorders

Red Box provides voice and data recording and analytics for customers in financial services, contact centres and the public sector. The business was founded in 1998 and now operates from its head office in Nottingham, with offices across the world in New York, London, Singapore, and Hong Kong.

Exclaimer

Exclaimer is the largest global provider of email signature software. The business was founded in 2000 and today provides software to over 25,000 customers in more than 100 countries including blue-chip firms such as the BBC, Audi, Sony and McDonalds.

Opinion

The business impact of going global and how to make it work

As an investor in international businesses and from first-hand experience of growing globally at Livingbridge, we recognise the advantages that expanding geographically can bring from both a company and from an investor perspective.